Corn Flakes, are a commercially prepared breakfast cereal made from corn, originally by the Kellogs Company. In addition to being a breakfast food corn flakes can be crushed and used as a topping for casseroles and vegetables. Kellogg's Competitors include General Mills, Mondelez International, Kraft Heinz, J M Smucker, Ingredion, Quaker Oats Company, Nestle, Conagra Foods. Suppose that you work for Kellogs and that you have estimated the following demand function

QX= 1.0-2.0 PX+ 1.5I+0.8PY-3.0PM+1.0A

Where

QX=sales in millions of 10-ounce boxes per year

PX= the price in dollars per ounce box

I= personal disposable income, in trillions of dollars per year

PY = price of Nestle cereals, in dollars per 10- ounce box

PM = price of milk, in dollars per quart

A= advertising expenditures in hundreds of thousands of dollars per year.

This year you got also the following information, PX= 1, I=4, PY = 2.50, PM =1 and A=2.

a) Calculate the sales of this year. Show all the steps of your calculations.

b) Calculate the elasticity of sales with respect to each variable in the demand function. Interpret the results found in words.

c) Estimate the level of sales next year if Px is reduced by 10 percent, advertising increases by 20 percent, I rises by 5 percent, PY is reduced by 10 percent, and PM remains unchanged.

d) By how much should this company change its advertising if it wants its sales to be 30 percent higher than this year? Make sure you show us all the steps of your calculations and you write down your thought process to answer the question.